Taipei’s Affordable Housing Challenge

High prices, a dysfunctional rental market, and limited public housing make it difficult for many citizens to find a suitable place to live.

Liu Wei-ting has a graduate degree in urban planning and is six years into a career as a manager of an engineering consulting firm, but he says he has little hope of ever being able to buy his own home. Even with a monthly salary of around NT$55,000 (about US$1,800), Liu is one of many people – particularly the young, the elderly, and the otherwise disadvantaged – affected by the high cost of housing in Taiwan, the world’s seventh most densely populated country.

“Even if I saved into a second lifetime, I might not be able to afford my own home,” says the 31-year-old, who lives with his mother in the 30-ping (1,080 square-foot) New Taipei City apartment where he grew up. Liu’s father, a security guard at the Hsinchu Science Park, and his mother, an accountant at a shipping company, are both 65 and still working to pay off the mortgage on their decades-old apartment.

After food, transportation, and other basic living expenses, Liu has around NT$20,000 left every month, most of which he tries to put into savings. His raise of one to two thousand NT dollars every year or two hardly keeps up with the inflation rate. At this pace, it would be 1,300 months before he is able to afford a similarly sized home in Taipei City.

The ratio of housing price to annual household income rose from 8:9 to 15:7 between 2005 and 2014, according to a survey by Demographia International Housing. At the current level, Taipei is comparable to Hong Kong and San Francisco, two of the least affordable cities in the world.

In recent years, the Taiwan government has taken steps to try to rectify the situation, launching an ambitious social housing initiative and passing new legislation in an attempt to address the uneven supply and demand. But whether those efforts will be effective is still uncertain.

Another response to high housing costs was the central government’s imposition of a special luxury tax in July 2011, prompted by the penchant of wealthy individuals to engage in real estate speculation due to the low property-tax rates. Under the scheme, income from the sale of second homes not occupied by the owner and sold within one year of purchase are taxed at 15%, and those sold within two years of purchase taxed at 10%. In March 2014, general property taxes on non-owner-occupied residential properties were also raised. But despite these measures, the private property market remains largely unregulated and susceptible to speculation, experts say.

Given the difficulty of becoming a home owner, many young people, including Liu, opt to spend their earnings on food and travel. “If I can’t buy a home, then I’d rather rent or live in my parents’ home and use the rest of my money to enjoy life,” says Liu. “I mean why not? Young people like us don’t have that many options. Our economic situation is such that my parents can’t help me pay a down payment.” Liu has already traveled to Japan and China, and has trips planned to Huangshan in China and Bangkok later this year.

Because traditionally most Taiwanese have considered buying a home to be an important goal, the rental market is usually looked at merely as a stepping-stone toward that objective. But the supply is limited, with only 10.9% of Taiwan’s seven million households currently renting their living quarters. “There’s no common cultural sense of what it is to be a renter or to rent, so there’s a very poor model of a landlord and poor model of the tenant,” says Richard Ronald, a University of Amsterdam professor who has conducted extensive research on housing issues in East Asia.

Like most other countries, Taiwan law requires a lease contract to be drafted and signed for each rental property. However, the majority of rental units reportedly are being rented under the table to enable the landlords to avoid the higher property tax rates for non-owner-occupied homes. This arrangement leaves tenants unprotected and leads to frequent disagreements and misunderstandings.

Huyen Duong, a 33-year-old native of Vietnam, turned immediately to rental housing after leaving an abusive marriage, and has now dealt with three difficult landlords for the three rental homes she’s lived in. Her current living space – a single room with a balcony that she turned into a kitchen – includes a washing machine and a refrigerator, but she is prohibited from using either because her landlord wants to minimize electricity costs.

Cash strapped and limited by her minimum-wage job in the restaurant industry, she has no choice but to comply. “I really just want to have my own place,” said Duong. “I’ve been in too many situations where people want me out.”

Many challenges for renters

Up against high (for them) rent and landlords looking to maximize yield, the socially disadvantaged often have a particularly hard time navigating the private rental market. “You want rental protection, but you do want to provide certain kinds of incentive for people to rent, and I think Taiwan hasn’t really quite found that balance,” says Ronald.

Landlords are often hesitant to rent to members of disadvantaged groups for fear that they won’t be able to pay the rent or that the death of an elderly person will impact the property’s fengshui, says Zhang Meng-yi, director of the Eden Social Welfare Foundation’s Tainan Branch, which provides a small amount of low-cost rental units to the socially disadvantaged in Tainan.

Financial pressures and discrimination ultimately push many disadvantaged into lower-standard properties. Even a fair-market, single-room apartment without a bathroom in the Wanhua District – the lowest cost area in Taipei – rents for NT$4,000 to $5,000 per month. At just two ping, such a room would be large enough for only a twin-size bed and a small desk.

Places renting for less than NT$4,000 usually include only a mattress and frequently do not meet minimum health and safety standards. Duong’s first independent living space in Taipei was a portion of an illegally rooftop add-on with a plywood interior covered by a mosaic of corrugated metal sheets.

Substandard living options such as this offer no bathroom and little privacy, and have been the object of vocal pro-tests by housing advocacy groups, most notably the Social Housing Advocacy Consortium, founded by 13 NGOs in 2010.

There are upwards of a million such units that violate the building code, says Peng Yang-kai, Secretary General of the OURSs Urban Reform Organization. “Renting out a ton of these substandard units is obviously more cost effective for landlords, but it contributes to the soaring market, leaves little room for other forms of rental housing on the market, and places an added burden on tenants,” Peng has written in an article entitled “Transition Mentality: the Root Cause of the Rent Crisis in Taiwan.”

The “transition mentality” also has an impact on the standard of the rental housing. “It’s only a temporary measure, so tenants are generally not as demanding as to the quality or their rights as ten-ants,” says Lu Ping-yi, director of the Tsuei Ma-Ma Foundation for Housing and Community Services. “The quality is subpar? ‘I’ll just grit my teeth for two years.’ My rental contract is unfair? ‘Well, it’ll be up in two years.’”

At the same time, a large number of housing units are left unoccupied – the vacancy rate in Taipei City is estimated to be 14% – because low property taxes mean landlords suffer little financial loss by declining to rent their property out. The Land Act stipulates that the total annual rent charged for a housing unit may not exceed 10% of the property value, which is not sufficient inducement for some owners to look for tenants, especially when signing a formal lease would expose the landlord to higher income taxes.

Ronald notes that a “lively thriving private rental sector where people move in and out easily and where the transaction basis for landlords is quite straightforward creates a kind of flywheel for the rest of the housing culture and it’s also a solution for the vacancy problem.”

Insufficient public housing

In recent years the government has been looking at expanding the supply of public housing as a means of addressing the housing challenge. Moving into a social housing unit, for example, would give Liu Wei-ting another option other than living with mom or owning a house outright. “It would really be a great alter-native,” he says.

The Tsai administration has announced plans to add 200,000 units to the social housing stock, with 120,000 to come from new construction and 80,000 through subleases of existing units from private landlords. But implementation has been slow due to reluctance by landlords to sublet and opposition from community residents resistant to having public housing in their neighborhoods.

The limited supply of land for construction sites and the complex design and budget allocation processes have been further obstacles.

Social housing is relatively rare in Taiwan compared with other advanced countries. For example, the proportion of social housing in Hong Kong is 30%, in Australia 23%, the United Kingdom 18%, and Japan 6.1%. In Taiwan as a whole, social housing comprises just 0.12% of the housing stock. In Taipei this figure currently is slightly higher at 0.9%, while the goal is to bring the pro-portion up to 2.7% by 2022.

Taipei Mayor Ko Wen-je’s election promise in 2014 was to build 50,000 social housing units within eight years. The administration says that by the end of this year, nearly 20,000 units at 127 sites throughout the city will either have been built or started development. A 1,044-unit project near the Yongchun MRT Station in the Xinyi district broke ground in January and is scheduled to be completed in 2020.

According to Lin Jou-min, the Taipei City government’s commissioner in charge of urban development, the first two years of the mayor’s term were devoted to budget allocation, planning design and construction, and communicating with citizens. This last task proved to be the most challenging due to the prevalence of a “not-in-my-backyard” mentality toward housing for low-income households, he says.

The city government has tried to change this attitude by curating exhibits and holding at least two public hearings for each project being proposed. It has also sought to accommodate reasonable demands from the public – for example, it widened the sidewalk in one project in response to complaints that a garage driveway was obstructing a nearby walkway. On August 1, an online platform with live updates on each public housing project was made available to the public.

Lin emphasizes the positive social impact of the planned housing projects. “It’s more than a home for the low-income. It’s a functional public space for every citizen living nearby.” He notes that each of the 36 complexes will include a park, kindergarten, home for the elderly, public library, and other facilities.

The public-housing units already available are in very high demand, with only 5% of applicants selected through a lottery system. After failing in one effort to gain a place in a new public-housing complex in the Sanchong District of New Taipei City, Liu recognizes the difficult odds.

“If there’s an opportunity, I will definitely go for it again,” he says. “But there are just so many applicants, it’s basically impossible. Plus, I don’t have good luck.”

The Housing Act passed in 2011 requires that the government reserve 10% of the social rental housing for low-income and other disadvantaged groups. Nearly 80% of social housing residents in Taipei have an annual income of less than NT$600,000 per month. In 2016, the proportion was raised to 30%, but housing advocates believe this proportion is still inadequate.

“The purpose of public housing policy should be to prioritize and support the socially disadvantaged,” says Lu. “Thirty percent is better but still on the low side. Forty to fifty percent would be more appropriate.”

For Liu’s family, the rental fees for social housing might still be a reach even if he is lucky enough to receive a slot. The amount of rent varies by location and apartment size, but generally is 15-20% lower than the market rate for a similar unit.

The plans to create more public housing by subleasing existing units through government subsidies – known as baozu dai guan (包租代管) have been stalled by the dearth of landlords willing to participate in the program. Doing so would force landlords to pay taxes and comply with rent regulations for every property under their name. Some owners also fear that this experimental policy may not be sustained over the long-term.

Having peaked in 2014, housing prices in Taiwan have been gradually dropping, making home-buying slightly more affordable for middle and upper middle-class families. “There aren’t a ton of people investing in [residential] real estate here anymore,” says real-estate agent Chen Tai-yuan. “Only if you really don’t have any other place to park your money will you buy a house.” Most of the buyers currently in the market are looking for a property for their own use rather than investment,” he notes.

The situation “may get better for some people, but it won’t be a drastic difference,” Lu predicts. “Housing is one of the most basic rights and most basic needs. If you can allow young people and socially disadvantaged folks to settle down in a stable living environment, then you’ve already solved 50% of all social problems.”

Sophia is interning as a reporter for the Taiwan Business TOPICS magazine during the summer of 2018. She attends Princeton University, majoring in the Woodrow Wilson School of Public and International Affairs and pursuing a certificate in Journalism.

Taiwan Business TOPICS

Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei, and covers current topic affecting business conditions in Taiwan, an Industry Focus section on a particular industrial sector, and other reports prepared by the magazine’s staff of experienced professional journalists.